June Appraisal Commentary

The following is a summary of the talk given to professionals at the June 18th H. Pearce commercial Real Estate conference at the Maritime Center at New Haven in which Marc was asked to give the investment and professional community current thoughts and ideas of how appraisers must adapt in this market place, how the appraisal community is being viewed, what steps appraisers are undertaking in such a difficult lending environment, and other current appraisal topics and techniques and comments/questions in the audience.

This talk, update, and discussion time is to focus on what a commercial and residential appraisal office must process, what due diligence must be done, and how the attorneys, accountants, and professionals in this room and their clients might better understand the most current appraisal issues and dilemmas and how we can work together to understand the June 2009 process.

Craig Fuchs, VP and commercial manager, asked me prepare some short remarks about the current state of the appraisal profession, how loans are and are not being priced or given, the current valuation process, and how it all of this affects your clients, you as their advisors in doing business in the June 2009 mostly uncertain economy. And then on Tuesday afternoon Craig labeled this talk as "Property Valuation in a Rapidly De-Valuing Economy"---whew! Craig -We will stay a little more upbeat as the value is not necessarily declining as the newspapers & media say at least here in CT.Appraisers by nature study a particular niche and try to find trends, reliability and dependability in making predictions and objective valuation determination when they take on an assignment through research be it through town records, adjacent towns if necessary, the multiple listing system-MLS, various Internet and commercial resources to access data. My RE training after college started with Principal and Practices a basic appraisal and RE course taught by an experienced litigation appraiser who taught by proving the facts. At that time the methodology of using a highly ethical and uniform system was being formulated and now it is known as USPAP= The Uniform Standards of Professional Appraisal Practice. This was implemented, formulated and adapted after the major banking crisis of some 20 years ago with the savings and loan debacle. For those of you who remember that banking meltdown in the early 1990's, including the Milford based Resolution Trust Corporation, the RTC, which is akin to the TARP Funding of today. Twenty years ago as is today EVERY loan, every appraisal, every lawyer and accountant is being scrutinized it its role in any kind of residential or commercial transaction- regardless of complexity, size and amount. Everyone is doing their due diligence resulting in higher based liability insurance premiums for the appraisers and 28 hours bi-annually of educational requirements, further legal scrutiny being imposed by lawyer's title and insurance premiums, and the accountants have further scrutiny by FASB and other compelling education you must take. I am told lawyers don't necessarily have additional educational requirements imposed.

It is June and what affect is the banking crisis bearing on the market and the appraisal process? And I want to hear your feedback after I cite some examples that have recently occurred in our practice..

Effective May 1st the rules for ordering and obtaining appraisals for lending changed. Under the newly created HVCC (the Home Valuation Credit and Collection process) lenders and mortgage brokers are supposed to be "hands off" when requesting an appraisal such that an independent appraisal management company (AMC) orders, pays and distributes the appraisal. Therefore, the guidelines are such that appraisals for FHA, HUD, FNMA, and FNMC can be done by any certified approved appraiser and can be ordered fairly by anyone versus a conventional loan which must be ordered through an AMC or a bank itself if it is keeping and processing the loan or as they say it has "skin in the transaction.". What expertise do the AMCs have, and why were they given the responsibility to monitor the appraisal quality that we, as appraisers, must follow and adhere to under USPAP-the Uniform Standards of Professional Appraisal Practice is another question. Does the public, mortgage lenders, appraisers, and you the audience understand what these new rules are going to do to the mortgage process? Is the mortgage money being given out , or is it reluctantly being given out to mostly FHA guarantees? Or does the public and lenders feel the same way that having the government guarantee the money which is being slowly doled out because the large banks that are recipients of the TARP money want to continue to hold onto their money to look good financially and to be careful how they allow mortgages to be provided. These editorial comments seem to be holding in the market-do you concur? Are loans being done now or are they scrutinized and at a standstill?

How has the appraiser changed in his or her work in doing an appraisal assignment? Effective April 1st appraisers in a federally regulated residential financing transaction are required to provide a 1004MC Addendum which is to illustrate what trends have happened to the real estate market in the last 3 months, the last 6 months and the 6-month to 1 year past as to number of listings, sales and marketing days, changes in what the listing price as to what the sale price was of the asking price, & discussion on foreclosures and commentary of what has happened to the market. Are foreclosures the norm or are they to be weighted as to the valuation process?

As appraisers we are to be even more objective minding our uniform standards so that we step back further and ask how the weighting of value was determined. In the case of a single family or condominium typically the comparable sales method is the only method weighted. When appraising a different type of multi-family, an income property, or other properties we need to objectify the income approach and to review the limited amount of comparable sales and decide the weight and recapitulation as to value and to use the appraiser's expertise in determining what we are really appraising.

Some of the examples in just the past month or so & what happens when an appraisal is 1st requested and how the scope changes will be described. What the attorney or accountant may need, & ultimately what the client needs can be quite different for example in these cases I will specifically tell you how the reporting changed and evolved to suit the different interests-

1. A Wilton land appraisal for probate in 2008 for an estate.-2 reports and different analysis

2. A Lyme,CT single family 1BR 1400 SF home overlooking the water.-extensive criticism-

3. A Stratford land valuation after a foreclosure from a builder.- disbelief & then a banker-

4. A Hartford mixed-use retail and apartment building in default.-trying to minimize loss-

5. A 3-family in Norwalk after litigation and disagreement w/family members.-many issues-

7. An auto repair property in default of payments-sought strict foreclosure over court -Each of these above are for different purposes and evolved for a specific set of reasons. And please later ask me about your particular scenario or a way to go about conducting an appraisal assignment to be most effective for your particular need.